Wind Production Tax Credit Already Phasing Out

August 21, 2012

The production tax credit (PTC) for wind energy is set to expire at the end of the year, and its supporters are already arguing for an extension. Their argument is that businesses need certainty so that they can take advantage of the PTCs. However, the law as it stands already provides certainty, says David Kreutzer, the Senior Policy Analyst in Energy Economics and Climate Change at the Heritage Foundation.

The wholesale price of electricity in the U.S. markets average from under 3 cents to 4.5 cents per kilowatt hour (kwh).

The PTC provides a subsidy of 2.2 cents per kwh to wind energy producers

In total, this is about 50 percent to 70 percent of the wholesale price of electricity.

This subsidy is on top of renewable energy standards that many states have in place that force ratepayers to buy wind-, solar- and biomass-produced electricity regardless of the cost.

Opponents of cutting the PTC argue that it should be phased out instead. However, in the status quo the current law provides that the benefits of the PTC be phased out. For example, there is a 10 year benefit eligibility for turbines after they have been constructed. Turbines created in 2007 will receive the PTC until 2017. So any turbine that is created before the deadline will continue to receive benefits for a decade, until January 2023.

Without a PTC, some wind will be competitive and some will not. That is how business goes. However, a business that cannot survive without taxpayers paying for 50 percent of the costs (in addition to the benefit of the renewable mandates) is not one that is helping the economy overall. Instead, it is using resources whose value exceeds the value of the electricity produced.